4 Very Different Strategies For Paying Off Debt From Someone Who Paid Off $81,000

Melanie Lockert
September 12, 2018

Are you feeling stuck and frustrated with your debt repayment? Let’s face it, paying off debt is no fun. You may think of paying off debt as just another minimum payment to make and treat it like a bill. But if you really want to make progress on your debt it’s all about having a strategy!

A strategy can get you out of just “going through the motions” and help you take action and stay inspired to actually get out of debt (which you probably wanted to do yesterday).

Here are 4 debt payoff strategies to consider:

1. The Debt Snowball

It’s easy to lose motivation when you’re paying off debt. The Debt Snowball can help rev up the motivation and propel you into forward motion.

The Debt Snowball method focuses on paying off the smallest debts first, while making minimum payments on your other debt. So let’s say you have:

$4,000 credit card debt, 15%

$22,000 student loan debt, 6.8%

$2000 car loan, 3%

To “snowball” your debt you would make minimum payments on all of your loans but throw your extra cash toward eliminating the car loan first as it has the smallest balance. The point of the snowball is to have quick wins and boosts of motivation. Once that is paid off, you’d then pay off your credit card debt and then your student loan.

As you build momentum (think of building a snowball) you can see your balances go down and get excited. This motivation can help carry you through.

2. The Debt Avalanche

The Debt Snowball may be all about motivation but the Debt Avalanche is all about math. In other words, what can save you the most money in interest? Well, that means focusing on your highest interest debt first. So you’d make minimum payments on all of your loans but throw any extra cash toward your loan with the highest interest rate. That way you can ultimately save money on interest and chip away at the principal balance.

Let’s look at this example again:

$4,000 credit card debt, 15%

$22,000 student loan debt, 6.8%

$2000 car loan, 3%

Using the Debt Avalanche, you’d put your focus on paying off your credit card debt as it has a high interest rate of 15 percent. Once that is paid off, you’d focus on getting rid of that student loan debt until only your car loan is remaining. Over time, you will save money on interest and may have a shorter repayment term.

Of course with both the Debt Snowball and Debt Avalanche methods, you want to always pay the minimum on all of your loans but direct your extra money in a strategic way — whether that be based on the smallest balance or the highest interest.

3. The Anger Approach

These next two strategies are unconventional to be sure. I wrote about them in my book Dear Debt and believe in them as I so clearly understand the relationship between your emotions and debt.

Using the Anger Approach, you would focus on paying off the debt that angers you the most. So let’s say you racked up some credit card debt due to an ex-boyfriend or feel completely jaded by your college experience and your student loan payments are a constant reminder of that. Instead of just letting that anger fester, let it fuel you!

When I happened to realized my student loans were costing me $11 per day in interest, I got mad. So I focused on the Debt Avalanche method but also used the Anger Approach as I was angry and wanted my student loans gone.

Of course, no one likes being angry and you don’t want to have unnecessary anger. But if one loan over another just irks you, let that fuel you to pay that loan off ASAP.

4. Paying for Peace of Mind

Paying off debt can be an emotional, stressful process. There’s a lot of feelings around carrying debt, a lot of reasons why we get into debt and it can all add up.

You may have a certain type of debt that robs you of your peace of mind. Maybe you borrowed money from your parents and it’s causing a conflict and makes the holidays…a bit awkward. Maybe you took out a personal loan for a wedding that didn’t end up happening.

These types of debt can eat at you and I say pay off the loans that will give you peace of mind. Your peace of mind is priceless and you want to be able to sleep well at night.

Using this method, you can take an active role in improving your life and de-stressing, all while boosting your peace of mind.

Final word

There’s no doubt that paying off debt is tough. If it were easy, everyone would do it. But you don’t have to stay stuck in debt and if you want to get out of debt, it’s time to be smart and have a strategy. You can use one of these four strategies — or even one you make up on your own, or take a hybrid approach — and overhaul your debt repayments. Your life is waiting for you on the other side. Imagine what you can do with the money you will free up when you’re no longer making monthly payments toward debt?

Melanie Lockert is a personal finance expert, the blogger behind DearDebt.com and author of the book “Dear Debt: A story about breaking up with debt.” Melanie paid off $81,000 of debt and is now on a mission to help others do the same.

Feature Image: Twenty20